TEHRAN – Iranian President Hassan Rouhani recently marked the end of his first year in office not only with smiles, but also with further evidence of his efforts at domestic reform and geostrategic reorientation. In Iran’s case, these two imperatives have long gone hand in hand.

Rouhani now says that Iran would be willing to work with the United States in Iraq. The dire threat to both Iranian and US interests posed by the Islamic State (formerly the Islamic State in Iraq and Syria) has, evidently, brought the two countries closer together. In the days since the anniversary of Rouhani’s election, Iran’s foreign minister, Mohammad Javad Zarif, overcame his earlier reservations and expressed optimism about reaching an international deal on his country’s nuclear program by the original deadline of July 20.

If rapprochement with the West can be achieved, the removal of the international sanctions stemming from the nuclear program would give a tremendous boost to Rouhani’s economic policy. And it is here that Rouhani has invested much of his energy and political capital.

Coming into office, Rouhani had a clear priority: fix an economy devastated by eight years of former President Mahmoud Ahmadinejad’s demagogic mismanagement. He replaced Ahmadinejad’s incompetent thugs with a reasonably qualified cabinet and capable administrators, and has embarked on an ambitious program of economic development, expanded health care, and environmental protection.

Though Rouhani has made little headway combating rampant inflation, small business and the entrepreneurial middle class seem to be thriving. In early June, I found a recently opened complex of expensive restaurants opposite the new luxury Grand Hotel in Shiraz packed with affluent customers.

Rouhani is vigorously cultivating economic ties with Gulf states, including Kuwait, whose ruler he entertained in Tehran in early June before leaving on an official visit to Turkey, where he signed ten deals aimed at doubling bilateral trade, to $30 billion, in 2015. On the environmental front, Rouhani is also busy undoing his predecessor’s damage. Tehran’s air pollution, widely blamed by those with respiratory illness on low-octane “Ahmadinejad gasoline,” has visibly declined with the introduction of high-octane fuel and other restrictions.

Last but not least, Rouhani has launched his national health-insurance program, and ordered state hospitals, which dominate the health sector, to limit patients’ copayments for all medical expenses to 10%. Rouhani has made it clear that he wants to pay for the new health care by phasing out the monthly state stipends paid to more than seventy-four million registered citizens, which Ahmadinejad offered when he eliminated a wide range of subsidies.

The strongest factor working in Rouhani’s favor is the support of Ayatollah Ali Khamenei, the country’s Supreme Leader, for the president’s domestic policies – just as he has fully backed the nuclear negotiations. Unlike Ahmadinejad’s reformist predecessor, Mohammad Khatami, who acted more like the leader of the loyal opposition than head of the executive, Rouhani has worked closely with Khamenei.

In his speech to commemorate the 25th anniversary of Ayatollah Ruhollah Khomeini’s death on June 4, Khamenei fully appropriated the discourse of the dissident clerics aligned with Khatami. Thus, he described the regime instituted by Khomeini as a religious democracy in which all high state offices, including his own, derive their legitimacy from the will of the people as expressed in elections.

But Rouhani needs more than Khamenei’s backing. Khamenei is 74 and has health problems. With Mohammad Reza Mahdavi Kani, the 83-year-old chairman of the Council of Experts (the body of clerics that elects the supreme leader) gravely ill, Ghorbanali Dorri-Najafabadi, an influential member and former intelligence and security minister, has suggested that the Council should proceed to elect Khamenei’s successor now. Clearly, the clerical elite is concerned about the future of its leadership after Khamenei. Should a succession process begin soon, it would significantly constrain Rouhani’s room for maneuver.

Rouhani’s relations with the Iranian Revolutionary Guard Corps (IRGC) and other security forces are of more immediate concern. Last month’s unceremonious killing of a billionaire businessman detained by security forces on corruption charges seemed to reflect the tacit division of power between the president and Iran’s security apparatus.

Nonetheless, tension is simmering beneath the surface. Rouhani seems to have halted the expansion of the IRGC’s economic empire. The IRGC’s commander, General Mohammad Ali Jafari, has publicly expressed his hostility to Rouhani’s administration, while General Hassan Firouzabadi, Chief of Staff of the Armed Forces, has countered by expressing his support for the president.

It is in Iraq, however, that Iran faces its most complicated mix of challenge and opportunity. Determined to prevent the disintegration of the country, Iran has provided military and political support to Prime Minister Nouri al-Maliki’s government. This appears to align Iranian and American policies, with both determined to counter the gains of radical Islamist forces in Iraq and Syria. Rouhani’s circle is fully prepared to address this crisis by talking to the US.

After a year in power, Rouhani’s program of economic development, environmental cleanup, and improved health care is proceeding smoothly and quietly. But, given the uncertainty of the domestic and international political context, there are no guarantees of success. Much depends on whether a nuclear deal with the international community is achieved, and the likelihood of that outcome has unexpectedly increased, owing to the common interest of Iran and the US in coping with the collapse of Iraq.

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